School District Fiscal Health Improves,
but Some Long-term Challenges Remain

Memorandum 1127, June 2014

On June 5, 2014, State Superintendent of Public Instruction Mike Flanagan delivered his quarterly update to lawmakers about the fiscal condition of select Michigan school districts. The subject districts (both traditional public and charter schools) are the most fiscally challenged; they either incurred deficits in the immediately preceding school fiscal year or are projected to end the current year in deficit. While helpful to the cause, the report’s limited focus cannot provide a complete picture of the overall health of all school districts.

Currently, Michigan has 548 traditional public school districts, 296 charter schools, and 56 intermediate school districts (ISDs) providing K-12 education services to 1.5 million school children. Each of these 900 entities faces its own set of financial circumstances (e.g., varying per-pupil revenue amounts, expense obligations, student enrollments, fund balances, management expertise, etc.). Any attempt to summarize or provide a one-word assessment of the financial health of ALL school districts would be misleading and of little value. However, it is possible to review relevant financial information to provide some general insights about the current situation and highlight important short- and long-term trends affecting public schools.

Overall, the fiscal health of Michigan school districts is a mixed bag; there is some good news as well as bad news. A total of 48 districts finished fiscal year 2013 (FY2013) in deficit, down slightly from the 49 districts that ended FY2012 in deficit. Over the last year, most of these districts have improved their standing. A handful of districts continue to overspend their budgets, but the number of these districts has leveled off recently. On the other hand, some deficit districts, particularly those that cannot reverse massive annual student departures, continue to see their financial health deteriorate. From a broad-based perspective, and taking into account a number of relevant financial measures, about one-half of all traditional public school districts saw their fiscal health erode over the past five-year period; some minimally and others significantly. The remaining districts maintained or improved their fiscal well-being over this period.

Citizens, the media, and school personnel tend to focus their attention on the fiscal health of Michigan’s most financially challenged districts, which are more likely to be managing their finances poorly and need additional state oversight or technical assistance. While important, this information does little to present what is going on outside of this very small share of the entities responsible for delivering K-12 education services. A number of districts have recently improved their fiscal standing and conditions are ripe for continued improvement. The prospect of better financial health, however, will be tempered for many districts by the headwinds created by declining student enrollments.

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